Correlation Between NBI Unconstrained and IShares Fundamental

Can any of the company-specific risk be diversified away by investing in both NBI Unconstrained and IShares Fundamental at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NBI Unconstrained and IShares Fundamental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NBI Unconstrained Fixed and iShares Fundamental Hedged, you can compare the effects of market volatilities on NBI Unconstrained and IShares Fundamental and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NBI Unconstrained with a short position of IShares Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of NBI Unconstrained and IShares Fundamental.

Diversification Opportunities for NBI Unconstrained and IShares Fundamental

0.18

Correlation Coefficient

NBI Unconstrained  IShares Fundamental

Average diversification

The 3 months correlation between NBI and IShares is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding NBI Unconstrained Fixed and iShares Fundamental Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Fundamental and NBI Unconstrained is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NBI Unconstrained Fixed are associated (or correlated) with IShares Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Fundamental has no effect on the direction of NBI Unconstrained i.e., NBI Unconstrained and IShares Fundamental go up and down completely randomly.

Pair Corralation between NBI Unconstrained and IShares Fundamental

Assuming the 90 days trading horizon NBI Unconstrained is expected to generate 4.11 times less return on investment than IShares Fundamental. But when comparing it to its historical volatility, NBI Unconstrained Fixed is 1.74 times less risky than IShares Fundamental. It trades about 0.04 of its potential returns per unit of risk. iShares Fundamental Hedged is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,693  in iShares Fundamental Hedged on October 6, 2024 and sell it today you would earn a total of  734.00  from holding iShares Fundamental Hedged or generate 15.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NBI Unconstrained Fixed  vs.  iShares Fundamental Hedged

NBI Unconstrained Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NBI Unconstrained Fixed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NBI Unconstrained is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Fundamental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fundamental Hedged are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Fundamental is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NBI Unconstrained and IShares Fundamental

The main advantage of trading using opposite NBI Unconstrained and IShares Fundamental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NBI Unconstrained position performs unexpectedly, IShares Fundamental can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in IShares Fundamental will offset losses from the drop in IShares Fundamental's long position.

The idea behind NBI Unconstrained Fixed and iShares Fundamental Hedged pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.